Offering business loans is not just good for members and your organization’s bottom line, suggests $706 million Honor Credit Union CEO and CUES member Scott McFarland. It benefits the entire credit union movement.
“The more credit unions are doing business lending and doing it well, the better off we are as an industry. Every time a member goes into a credit union only to be told, ‘We don’t do that,’ it’s a setback for all of us,” he says. “We have to be the kind of organization that can provide the financial services members want and need, and commercial lending is one source of that value.”
Honor CU, Berrien Springs, Mich., which has long made commercial and residential loans, began expanding its business loan and deposit offerings in 2009. The credit union currently serves about 500 business members with a range of credit options, checking, payroll processing, and ACH and merchant services, says Business Services Manager Kathy Becht.
Its expansion of business services coincided with rocky economic times, which actually boosted Honor CU’s efforts to build business member relationships. “When the market turned south seven years ago and banks were calling loans, small businesses turned to us, and we were able to make a lot of those loans,” McFarland says.
Describing the credit union’s approach to business lending as “conservative to mid-conservative,” McFarland says Honor CU extends its member promise—“Providing solutions for financial success”—to its approach to serving business members in agriculture, hospitality, service and other sectors.
“That promise speaks to a partnership rather than just delivering a product,” he says. “With all the technology and convenience of remote everything, many of the businesses we serve are based in small and mid-sized communities where people still value being able to come in and talk to someone.”
The credit union relies on “old-school rain-making” by business development officers out in the communities it serves as a primary means of marketing business services, McFarland says. “There’s no magic bullet. It really comes down to good old-fashioned hard work in getting to know people.”
Business development officers partner with branch managers to call on business members in the area “to make sure we’re providing all the services they need,” Becht says. “And many of our business members handle all of their personal financial services with us as well. They know us. They like us. They trust us.”
Beyond the financial return of offering business services, the strategic value of this product line lies in strengthening relationships with existing members and reaching out to prospective members, McFarland suggests. “It’s imperative to provide all the financial services members expect. Our member promise doesn’t just say we provide solutions for your mortgage or car loan. We’re here for your business needs as well.”
At the same time, credit unions must identify their risk appetite in business lending and adhere to those guidelines. At a recent business loan committee meeting, for example, committee members agreed that, for the loan application on the table, “the best deal on the table is not from us,” McFarland notes. Or as Becht puts it, “Our commitment to provide solutions doesn’t always mean it comes from us. We’re trying to help members be in the best place they can be.”
For credit unions that are weighing their options in getting into business lending, McFarland recommends getting in now, regardless of the size of your organization, and looking to more experienced financial cooperatives for guidance and support.
“A lot of credit unions may still be sitting on the sidelines waiting, but offering business services is long past being a fast follower,” he contends. “For all intents and purposes, we consider ourselves a mid-sized credit union at best. People tell us, ‘I can’t believe the type of business lending you’re doing for a $700 million credit million.’ I remember when we were saying those types of things about $7 million credit unions.”
The more credit unions work together in business lending, the more benefits accrue to their members, he adds. “Rather than say no to one of our business members, we’d rather go to another credit union and seek out a participation to spread out the concentration risk. That’s the old-school credit union way of making the most of cooperatives. We’re willing to share our policies and lend support where we can.”
Honor CU has originated business loans for other credit unions to share its expertise in underwriting and risk analysis, Becht says. “We’re good neighbors just trying to help.”
Karen Bankston is a long-time contributor to Credit Union Management and writes about credit unions, membership growth, marketing, operations and technology. She is the proprietor of Precision Prose, Portland, Ore.